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American bankruptcy long overdue, travel experts say

American Airlines announced Tuesday it's filing for bankruptcy protection, the last of this country's major airlines to do so in the face of high fuel costs that have shaken the airline business model. What does the move mean for those with plane tickets, travel plans and frequent flier miles? Tom Costello reports.

Customers of American Airlines woke up Tuesday to news about the carrier’s parent company filing for Chapter 11 bankruptcy protection.

The airline insists it will continue operating seamlessly.

“Our customers can rest assured that American will continue to offer the same great service, AAdvantage program benefits and industry-leading products and services that you’ve come to expect,” said Tim Horton, American’s chairman, CEO and president, in a video message.

But what about the people who closely monitor the airlines and travel industry? What do they think about the news?

Overhead Bin spoke with Tim Winship, a loyalty program expert and publisher of Frequentflier.com; Henry Harteveldt, a travel analyst who co-founded Atmosphere Research Group; and Joe Brancatelli, a veteran business traveler and publisher of JoeSentMe.com, about what the bankruptcy filing means for travelers.

OB: Are you surprised by the news?“No,” Harteveldt said. “Its competitors have used bankruptcy to bring down costs. American tried to do that outside of bankruptcy, but they had no recourse but to file.”

“It had certainly been on my radar that they had been poised to do this and that there were internal discussions,” Winship said, but added he was surprised to wake up to the news.

OB: If you were a loyal American Airlines customer, would you continue to book and purchase tickets from the airline?"Yes. Airlines go out of their way to convince you that everything's normal after a bankruptcy," Brancatelli said. "So for the next 30 days or so, you're fine. In fact, you may actually see an improvement at American as they struggle to project a sense of normalcy."

“Absolutely,” Harteveldt said. “There is no reason to book away from American” if it continues to meet travelers' expectations.

Winship agreed. “Not that I would take them or any other company at their word necessarily, but if we look back at the history of airlines going into Chapter 11 – especially major carriers of the scale of American – what we see … is that indeed they were able to operate normally while under the protection of Chapter 11. I would say to people that they maintain their relationship with American as it’s been in the past.”

OB: What actions, if any, would you recommend an American Airlines customer take?“I am reluctant to suggest people do X, Y or Z because I don’t think there’s any action called for at this point,” Winship said. “As an industry watcher and airfare consumer, I will certainly be watching American closely in coming weeks and months to make sure that they are making progress toward resolving their internal financial issues. Beyond that, I think it would be premature and unnecessary for consumers to go beyond that as a result of this filing. I think the way to look at this filing is as a formality – something they need to do to get their house in order cost-wise and something they should have done some years ago.”

Harteveldt said travelers who have reservations on American will be OK. “I expect American to fly the flights it has scheduled,” he said. “The AAdvantage program will be fine. It is one of the most valuable assets of American,” Harteveldt said. But the carrier “will need to launch new promotions to keep people from defecting to other airline frequent flier programs.”

Brancatelli warns of booking too far ahead into 2012, but not because of the company's financial viability. “In January/February, the weakest months of the year for most travel, American will decide about routes to drop and service to change,” he said. “You might find yourself having booked an American flight and then hotels and tours and such only to learn that American is dropping the route.”

OB: American is looking for concessions from its work force. Will flight crews who make less money or get fewer benefits affect the overall flying experience for customers?“I think that’s always a potential issue when there’s a scenario in which labor and management are at odds,” Winship said. “This falls under the heading of ‘wait and watch’ because it will depend on just how contentious those discussions become. It’s something consumers should be on the lookout for – things could turn ugly, especially when it comes to the customer-facing parts.”

Brancatelli expects the most experienced flight crews to leave the company. “American has been pushing them out anyway, so folks might now decide to jump ... I'd much prefer an experienced head who knows what s/he is doing in an emergency – I can't see how losing your best people is a benefit for travelers.”

OB: Ultimately, will bankruptcy protection prove to be beneficial, negative, or inconsequential for travelers?“I honestly don't know,” Brancatelli said. “American's management has been so ham-fisted that I can't see what [its] post-bankruptcy strategy is,” he said. “None of the airlines that have gone into bankruptcy post-9/11 has come out whole. Many went out of business. Those that emerged (Delta, Northwest, US Airways, Frontier, United) all ended up merging with other carriers. But I don't know who is a logical merger candidate for American Airlines now.”

Harteveldt is more bullish. “I think it will be good,” he said. “Looking at United, Delta and Continental, they used it to become better and more profitable.”

In the short-term, Winship sees the filing as “neutral with some possible negative side effects, those being possible disruptions in terms of needing to cut back on schedules somewhat as a way of better controlling costs and also the potential employee morale issue.”

“Long-term,” he added, “I think this is a positive. American is finally stepping up and dealing with a set of problems that have been long festering, and I think for the future of the company, it is both a necessary and positive thing.”